T.C. M em o . 2 0 1 7 -4 5

UNITED STATES TAX COURT

E STATE OF CHARLES KONKUS, DECEASED, LINDA COLLINS, ADM INISTRATOR, Pet i ti o n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 5 7 8 3-1 3L. Fi l edM arch 1 6 , 2 01 7
.
Al v i n S. Bro wn , fo r p et it i o n er. Sh awn a A. Earl y , fo r res p o n d en t.-2
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[* 2 ] M EM O RANDUM FINDINGS OF FACT AND OPINION GALE, Ju d g e: Pu rs u an tt o s ect i o n 6 3 3 0 (d ), 1 th e es t at e 2 s eek s rev i ew o f
res p o n d en t’ s d et erm i n at i o n t o s u s t ai n th e fi l i n g o f a No t ice o f Fed eral Tax Li en (NFTL) an d a n o t i ce o f i n t en t t o l ev y t o co ll ectas s es seds ect i on 6 7 0 0 t ax s h el t er p ro m o t io n p en al t i es fo r M r. Ko n ku s ’ t ax ab l e y ears 2 0 02 an d2 0 03 o f $ 3 ,4 1 1 ,5 7 7
an d $ 3 ,2 5 2 ,1 3 0 , res p ect i v el y . Th e i s s u e fo r d eci si o n i s wh et h er t he In t ern al Rev enu e Serv i ce (IRS) Ap p eal s o ffi cer ab u s edh i s d i scret i o n b y reject in g M r. Ko n ku s ’ o ffer-i n -co m p ro m i s e an ds u st ai ni n g the p ro p o s edco l l ect i o n act i o n s. FINDINGS OF FACT So m e o f t h e fact s are s t i p u l at edan dare s o fo u nd . Th e s t i p u l at io n o f fact s
an d th e at t ach edex h i b i t s are i n co rp o rat edh erei n b y th is referen ce.

1 Un l es s o t h erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al Rev enu e Co de as i n effect at al l rel ev an tt i m es , an dal l Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedu re. Al l d o l l ar am o u n t s h av e b een ro u n d ed t o the n eares td ol lar. (Fi g u res m ay d i ffer b ecau s e o f ro u nd i n g .)
2 Ch arl es M . Ko n ku s res i d edi n Il l i n o i s wh en t h e p et i ti o n was fi l ed . He d i ed i n t es tat e aft er t ri al . Li n d a Co l l i n s was th ereaft er ap p o i n tedad m i n i s t rat o r o f M r. Ko n ku s ’ es tat e, an db y s ubs equ en to rd er o f t h i s Co u rt t he es tat e was s ub s t i tu t edas p et i t i o n er.-3
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[* 3 ] I. As s es s m en to f Sect i o n 6 7 0 0 Pen al ti es an dRefu n dCl ai m Du ri n g th e y ears i n ques t i o n M r. Ko n ku s was th e p res i d en t an dco n t ro l l i n g
o ffi cer o f Part n ers In Ch ari ty , In c. (PIC), wh ich h el d i t s el f o u tas a s ect io n 5 0 1 (c)(3 ) o rg an i zat i o n . Atth att i m e PIC o p erat eda d o wnp aym en tas s i s tan ce p ro g ram th ro ug h wh ich i t p ro v i d edd o wnp aym en t s t o h o m e p u rch as ers wh o (PIC cl ai m ed ) were o f m o des t m ean s co n t in g en t o n th e s el l er’ s rei m b urs em en to f t h e d o wnp aym en tan d rem i s s i o n t o PIC o f an ad m i n is t rat i v e fee. On Ap ri l 1 7 , 2 0 0 6 , i n res p o n s e t o a co m

pl ai n tfi ledb y

th e Un i t edSt at es , th e U.S. Di st ri ctCo u rtfo r th e No rt h ern Di s t ri cto f Il l in oi s en t ereda p erm an en t i n jun ct io n b arri n g M r. Ko n ku s an d PIC fro m

ch aract eri zi n g, i n an y

way , th e p aym en t s fro m

s el l ers t o PIC
as t ax -d edu ct i bl e ch ari tab l e co n t ri b u t i o n s , Un i tedSt at es v . Part n ers In Ch ari t y , In c., No . 0 5 -cv -6 3 7 4 (N.D. Il l
. Ap r. 1 7 , 2 00 6 ) (o rd er g ran t i n g p erm an en t i n jun ct i o n ), an dthi s Co u rtu l t i m at el y up h el dth e IRS’ ret ro act i v e rev o cat i o n o f PIC’ s t ax -ex em

p ts t atus , Part n ers In Ch ari ty , In c. v . Co m m i s s io n er, 1 4 1 T.C. 1 5 1 (2 0 1 4). In rel at i on t o M r. Ko n ku s ’ i nv o l v em en twi t h PIC, o n J u ne 1 6 , 2 00 8 , res p o n d en t i s s uedt o h i m a CP1 5 , No t i ce o f Pen al ty Ch arg e, ad v i s i n g o f t h e
as s es s m en to f s ect i o n 6 7 0 0 p en al t i es ag ai n s t h i m , fo r th e p ro m o t i o n o f an ab u s i v e t ax s h el t er, o f $ 3 , 41 1 ,5 7 7 an d$ 3 ,2 5 2 , 1 3 0 fo r 2 00 2 an d2 00 3 , res p ect i v el y . On-4
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[* 4 ] J u l y 1 5 , 2 0 0 8, M r. Ko n ku s s ub m it t eda Fo rm 6 1 1 8 , Cl ai m

fo r Refu n d o f In co m e Tax Return Prep arer an dPro m ot er Pen al ti es , co n t es t i n g th e as s es s m en t o f th e s ect i o n 6 7 0 0 p en al t i es (refu n dcl ai m ) b u t d i dn o t rem i t1 5 % o f each p en al ty as req u i redb y

s ect i o n 6 7 0 3 (c)(1 ). 3 II. Co l l ect io n Act i o n s an dHeari n g Req u es ts Al s o o n J ul y

1 5 , 2 0 0 8 , res p o n d en tfi l edan NFTL an ds ub seq u en t l y i s s u ed t o M r. Ko n ku s a No t i ce o f Fed eral Tax Li en Fi l i n g an dYo u r Ri g htt o a Heari n g Un d er IRC 6 3 20 (l i en n o t i ce). OnJ u l y 2 4 , 2 0 0 8 , res p o n d en ti s s u edt o M r. Ko n ku s a Let t er 1 0 5 8 , Fi n al No t i ce o f In t en tt o Lev y an d No t i ce o f Yo u r Ri gh tt o a Heari n g (l ev y

n o t i ce), i n fo rm i n g h im

o f res p on d en t ’ s i n t en tt o l ev y o n h is p ro p ert y t o co l l ectth e u np ai ds ect i on 6 70 0 p en al t y as s es s m en ts fo r 2 0 0 2 an d2 0 0 3
. M r. Ko n ku s t i m el y

req u es t eda h eari ng wi t h res p ectt o b o t h th e l i en n o t i ce an dth e l ev y n o t i ce. Ap p eal s ackno wl ed g edM r. Ko n ku s ’ h eari n g req u es t s o n Sep t em b er 1 9 , 2 0 0 8 , an dap p ro x i m at el y o ne m o n th l at er, an Ap p eal s o ffi cer h el d an i n i t ial

3 M r. Ko n ku s al s o s ub m i t t edo n J u l y 2 8 , 2 0 0 8 , a Fo rm

6 5 6 -L, Offer i n Co m p ro m i s e (Do ub tas t o Li ab i l i t y ) (OIC-DATL), wh erei n h e d is p u tedth e s ec. 6 7 0 0 p en al t i es as “ co n t raryt o th e cl ear l an g u ag e o f s ect i o n 6 7 0 0 .” Ap p eal s reject edth e OIC-DATL o n the g ro u n d s t hats ec. 6 70 0 p en al t i es “ are n o t s ub jectt o co m p ro m i s e b as edup o n d o ub tas t o l i ab il i t y .” Th e es tat e co nced es th atth e OICDATL i s n o t ati s s u e.-5
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[* 5 ] t el ep h o n e co n feren ce wi t h M r. Ko n kus an dh i s co u n s el . Ho wev er, o n Feb ru ary 1 0 , 2 0 0 9 , th e s ect i o n 6 3 3 0 h eari n g was s u s p en d edp en di n g d i s p o s i t i o n o f M r. Ko n ku s ’ refu n d cl ai m . III. Den i al o f Refu n dCl ai m Th e refu n dcl ai m

was d en i edo n Feb ru ary

1 0 , 2 0 1 0 , i n a l et ter ad v i s in g M r. Ko n ku s th ath e co ul dap peal t o Ap p eal s wi t h in 3 0 d ay s . M r. Ko n ku s d i ds o , an d h i s ap p eal was co n s i d eredb y an Ap peal s o ffi cer n otas s o ci at edwi t h M r. Ko n ku s ’ s ect i o n 6 3 3 0 h eari n g . 4 On Ap ri l 2 3 , 2 0 12 , M r. Ko n kus ’ ap p eal o f h is reject edrefu n dcl ai m

was d en i ed
. IV. Res u m

p ti o n o f Sect i o n 6 3 3 0 Heari n g A. Pro p o s edCo n feren ce Onth e s am e d ay

th e ap p eal o f M r. Ko n ku s ’ refu n dcl ai m was d en i ed , th e Ap p eal s o ffi cer wh o h adb een as s i g n ed t o M r. Ko n ku s’ s ect i o n 6 3 3 0 h eari n g wh i l e

4 Al t h o ug h th e p art ies s t i p u l at edth atAp p eal s Offi cer Cu rt i s M eg y es i (AO M eg y es i ), wh o i s s u edth e n o ti ce o f d et erm i n at i o n aft er M r. Ko nku s’ s ec. 6 3 3 0 h eari n g , al so i s s u edth e Ap p eal s m em o ran du m reject i n g t h e ap p eal o f M r. Ko n ku s ’ refu ndcl ai m , th i s s t i p u l at io n i s co n t rad i ct edb y th e ad m i n i st rat i v e reco rd . AO M eg y es i ’ s cas e n o tes reco rdth ato n Ap ri l 2 3 , 2 0 1 2 , h e recei v ed an Ap p eal s o ffi cer’ s m em o ran du m

reject i n g th e ap p eal o f M r. Ko n ku s ’ refu n d cl ai m . W e th erefo re d i s reg ardth e s t i p ul at i o n an dfi n dth atth e Ap p eal s m em o ran dum reject i n g th e ap p eal o f M r. Ko n ku s ’ refu n d cl ai m was p rep aredn o tb y

AO M eg y es i b u ti n s t eadb y

a d i fferen t Ap p eal s o ffi cer. See Ru l e 9 1 (e); J as i o n o ws k i v . Co m m i s s i o n er, 6 6 T.C. 3 1 2, 3 1 8 (1 9 7 6 ).-6
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[* 6 ] h i s refu n d cl ai m

was p en d i n g , AO M eg y es i , t o o kth e h eari n g o u t o f
s u s p en s io n an ds en t M r. Ko n ku s a l et t er p ro p os i n g a t el ep h o ne co n feren ce. AO M eg y es i fu rt h er ex p l ai n edi n th e l et t er t h atM r. Ko n ku s was en t i t l edt o a h eari n g wi th an Ap p eal s em

p l o y ee wh o h adh adn o p ri or i nv o lv em en twi t h th e y ears i n qu es ti o n , s t at edth ath e co u ldn o trecal l h av i n g h adan y p ri o r i n v o l v em en twi t h the y ears i n qu es t i on , an dreq ues t edth atM r. Ko n ku s n o ti fy h i m i f h e b el i ev ed
o th erwi s e. Th ere i s n o ev i d en ce t h atM r. Ko n ku s n o t i fi edAO M eg y es i o f an y
co n cern reg ard i ng p ri o r i n v ol v em en t wi t h res pect t o t h e s ect i o n 6 7 0 0 p en al t i es fo r 2 0 0 2 an d2 0 0 3
. B. M r. Ko n ku s’ Offer-i n -Co m p ro m is e an dFi n an ci al In fo rm at i o n Sub m i t t ed OnJ u ne 1 1 , 2 01 2 , M r. Ko n ku s s ub m i t tedas a co l lect i o n al t ern at iv e, o n a Fo rm 6 5 6 , Offer i n Co m

p ro m i s e, an o ffer t o p ay $ 2,2 1 5 t o co m p ro m i s e h i s
co m b i ned$ 6 ,6 6 3 ,7 07 s ect i o n 6 7 0 0 p en al t y l i ab i l i t i es b as edo n d o ubtas t o
co l l ect i b i l i t y

(OIC-DATC). M r. Ko n ku s s up pl em en t edh i s o ffer wi t h a Fo rm 4 3 3
- A, Co l l ect i o n In fo rm at i o n St at em en tfo r W ag e Earn ers an dSel f-Em pl o y ed In d i v i du al s , co v eri n g h i m s el f an d a Fo rm 4 33 -B, Co l l ect i o n In fo rm at i o n St at em en t fo r Bu s i n es s es , co v eri n g PIC. Th e Fo rm 4 3 3 -B i n cl ud edPIC’ s 2 0 11 Fo rm 9 9 0 , Retu rn o f Org an i zat i o n E x em ptFro m In co m e Tax , a b al an ce s h eetrefl ect i n g PIC’ s-7
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[* 7 ] fi nan ci al co n d i t i o n as o f Decem b er 2 7 , 2 0 1 2, an da p ro fi tan d l o s s s t at em en t
co v eri n g PIC’ s o p erat i o n s fro m J an u ary 1 th ro u g h Decem

b er 2 7, 2 0 1 2 . Th e OICDATC an ds up p o rt i n g m at eri al s were fo rward edt o AO M eg y es i o n J u ly 3 , 2 0 1 2 , fo r rev i ew. Th e Fo rm 4 3 3 -A rep ort edth atM r. Ko nku s o wn edas s et s wi t h a t o t al cu rren t
v al u e o f $ 8 ,1 6 3, co m

p ri s i ng th e fo l l o wi ng : As s et Cu rren t v al u e Li fe i n s u ran ce p o l icy 1 $ 3 , 6 8 3 1 9 7 4 Ni ss an 2 8 0 Z 2 4 , 4 8 0 To t al 8 ,1 6 3

1 M r. Ko n ku s rep o rt edth e l i fe i n s u ran ce p o l i cy ’ s fai r m ark etv al u e as $ 7 ,3 5 3 an d i t s o u t s t an d i n g l o an b al an ce o f $ 2 ,7 7 4 , y et rep o rt edt o t al av ai l ab l e cas h as $ 3 ,6 8 3 . Th e reco rdi s s i l en t reg ard i n g th i s ap p aren t d i s crep an cy .

2 M r. Ko n ku s rep o rt edth e Ni s s an ’ s fai r m ark etv al u e as $ 5 ,6 0 0 b u t rep o rt ed t o t al equ i t y

o f $ 4 ,4 80
. Th e Fo rm 4 3 3 -A rep ort edth e fo l l o w i ng m o n t h l y i t em s o f i n co m e an d
ex p en s e: In co m e Am o u nt

W ag es $ 1 ,3 72 To t al 1 ,3 7 2-8
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[* 8 ] Ex p en s e Am ou n t

Fo o d , cl o t h i n g, an d m i s cel l an eo us $ 5 6 5 Ho u si n g an du t i l i ti es 3 1 4 Veh icl e o perat i n g co s t s 2 6 2 Ou t -o f-p o ck et h eal t h care co s t s 6 0 Tax es 1 2 5 To t al 1 ,3 2 6 PIC’ s b al an ce s h eetap pen d edt o th e Fo rm 4 33 -B rep o rt edth at as o f Decem b er 2 7 , 2 0 1 2 , i th ad t o t al cas h o f $ 2 0 6 , 5 0 0 an dt o t al o t h er as s et s o f $ 1 ,4 2 0 ,0 0 5 . Th e s am e b al an ce s h eetrep ort ed $ 1 4 6,8 8 1 i n “ Lo an s fro m St o ckh o l d ers ” as a cu rren t l i ab i l i ty . M r. Ko n kus ’ Fo rm 4 3 3 -A d idn o trep o rtth i s l o an as an as s et . PIC’ s p ro fi t an dl o s s s t at em en t fo r 2 0 1 2 l i s t eda h eal t h i n s u ran ce ex p en s e an d l eg al fees
o f $ 3 , 4 8 9 an d$ 3 3 ,2 9 2 , res pect i v el y . C. Th e Tel ep h o ne Co n feren ce OnJ an u ary

1 5 , 2 0 1 3 , AO M eg y es i h el d a t el ep h o n e co n feren ce wi t h M r. Ko n ku s an dh i s co u n s el . AO M eg y es i ’ s n ot es o f t h e t el ep h on e co n feren ce
reco rdth atM r. Ko n ku s cl ai m edh e h adn o ren to r m o rt g ag e ex p en s es b ecau s e h e l i vedi n fo recl o s edp ro p ert i es . Th e n o t es fu rt h er reco rdth atM r. Ko nku s cl ai m ed h e p ai du t i l i t y

ex p en s es i n the n am es o f th e p ro pert i es ’ fo rm er o wn ers . In-9
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[* 9 ] ad d it i o n , th e n o t es reco rd t h atM r. Ko n ku s ex p l ai n edth atal th o u g h h e o wn ed a car h e d ro v e PIC’ s co m p an y v eh i cl e. As h i s n o t es refl ect , aft er d i scu s s i n g M r. Ko n ku s ’ an dPIC’ s cred i tcards t at em en t s t h atM r. Ko nku s h ad s ub m i t t ed , AO M eg y es i co n cl u dedthatM r. Ko n ku s ’ an d PIC’ s ex p en s es were l arg el y
co m m i n g l ed an dth ati n s ev eral i n s t an ces PIC h adp ai dM r. Ko n ku s ’ p ers o nal
ex p en s es an d v i ce v ers a. Du ri n g th e t el ep h o ne co nferen ce AO M eg y es i i nqu iredas t o t h e n atu re o f th e o u ts t an d i n g $ 1 4 6 ,8 8 1 “ s t ock h o l d er” l oan refl ect edo n PIC’ s b al an ce s h eet . As
reco rd edi n AO M eg y es i’ s n o t es , M r. Ko n ku s ex p l ai n edth ath e h ad m ad e t h i s l o an t o PIC wh en i th adi n i ti at edi ts o p erat i on s b u tth atthe l o an n o l o ng er h adan y
v al u e as PIC was u n ab l e t o rep ay i t. M r. Ko n ku s th erefo re arg u edth ati ts h o u l d
n o tb e co n si d ereda co ll ect i b le as s et . AO M eg y es i ad d i t io n al l y rev i ewed M r. Ko n ku s ’ 2 0 0 9 an d2 0 1 0 Fed eral i n co m e t ax retu rn s (wh ich M r. Ko n ku s h ad
s ub m i t t ed ) du ri n g the t el ep h o n e co n feren ce. M r. Ko n ku s ’ 2 0 0 9 ret u rn rep ort ed th ath e h adm ad e a $ 1 9 ,1 0 0 d o n at i o n , at“ t h ri fts t o re v al u e”, t o an o t her n ot -fo rp ro fi t en t i t y

o f wh i ch h e was the p res i d en t , Res t o rat i o n Am eri ca. Du ri n g th e t el ep h o ne co nferen ce AO M eg y es i i nfo rm edM r. Ko n ku s an dh i s
co u ns el th atth e OIC-DATC wo u l dl i k el y b e reject edb ecau s e, i n t er al i a, AO M eg y es i b el i ev edth atM r. Ko n ku s ’ reas o n ab l e co l l ect i on p o t en ti al was m u ch-1 0
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[* 1 0 ] h i g h er t h an th e $ 2 ,2 1 5 o ffered . AO M eg y es i ’ s n o t es reco rdth atM r. Ko n ku s ag reedt o i ncreas e h i s o ffer t o $ 5 0 ,0 0 0 b u t i n di cat edth ath e wo ul dn otp ay m o re. D. AO M eg y es i ’ s Cal cu l at i o n o f M r. Ko n ku s ’ Reas o n ab l e Co l l ect i o n Po t en t ial Onth e b as is o f th e t el ep h o n e co n feren ce an dfi n an ci al i n fo rm at i o n wh i ch M r. Ko n ku s h ads ub m i t ted , AO M eg y es i cal cu l at edh i s reas o nab l e co l l ect i o n p o t en t i al i n an i n t ern al s up p lem en t al OIC Ap p eal s cas e m em oran du m (cas e
m em o ran du m ). AO M eg y es i d et erm i n ed t h atM r. Ko n ku s ’ n et real i zab l e eq u i ty i n h i s p ers o n al v eh icl e was $ 1 ,0 3 0 aft er red u ci n g M r. Ko n ku s ’ rep o rt edfai r m ark et
v al u e o f $ 5 ,6 0 0 b y

2 0 % t o refl ectqu i ck

s al e v al u e 5 an db y

a fu rt h er $ 3 ,4 50 redu ct i o n fro m

th e qu i ck s al e v al u e. As t o M r. Ko n ku s ’ l i fe i ns u ran ce p o l i cy , AO M eg y es i accep t edM r. Ko n kus ’ rep o rt edfai r m ark et v al u e o f $ 7 ,3 5 3 b u tredu cedi t b y i t s o ut s t an d i n g l o an b al an ce o f $ 2 ,7 7 4 fo r a n etreal i zab l e equ i t y o f $ 4,5 7 9
. AO M eg y es i al s o d et erm i n edth at t h e $ 1 4 6 ,8 8 1 l o an fro m M r. Ko n ku s l i s t ed
as a cu rren tl iab i l i t y

o n PIC’ s b al an ce s h eets h o u ldb e i n cl u d edas an as s eto f M r. Ko n ku s , as PIC’ s b al an ce s h eetfro m th e p rev i o u s m o n t h d em o ns t rat edth ati t h ad s uffi ci en tcas h t o p ay th e b al an ce i n fu l l . AO M eg y es i’ s n o t es refl ectth at , i n

5 Qu i cks al e v al u e i s an es t i m at e o f t h e p ri ce a s el l er co u ld g etfo r anas s eti f s o l dqu i ck l y , u s u al l y

i n 9 0 d ay s o r l es s . Qu i cks al e v al u e i s g en eral l y cal cu l at edat 8 0 % o f t h e fai r m ark etv al u e. See In t ern al Rev en u e M an u al (IRM ) p t . 5 .1 5.1 .2 0 (4 ) (Oct . 2 , 2 0 1 2 ).-1 1
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[* 1 1 ] reach i ng thi s p o s i t i o n, h e co n cl u d edth atM r. Ko n kus co n t ro l l edPIC t o s u ch
an ex ten t thath e co u l d h av e cau s edPIC t o rep ay th e l o anat an y

t im e. In drawi n g th i s co n cl u s i o n, h e rel i ed o n i t em s h e u n eart h edfro m PIC’ s p ro fi t an dl o s s
s t at em en tfo r 2 0 1 2 (an dd i s cu s s edwi t h M r. Ko n ku s ) wh i ch d em o n s t rat edth atPIC h ad p ai ds i g n i fi can t p ers o n al ex p en ses o f M r. Ko n kus i n t h aty ear, i n cl u d i n g $ 3 3 ,0 0 0 i n l eg al fees p ai dt o M r. Ko n ku s ’ co u n s el rep res en t i n g h i m i n co nn ect i o n wi th h is l i ab i li t y

fo r t h e s ect i o n 6 7 0 0 p en al t ies , $ 3,4 8 9 i n h eal t h i n s u ran ce fo r M r. Ko n ku s, as wel l as th e p aym en to f M r. Ko n ku s ’ p ers o nal ex p en s es wi t h PIC’ s cred i tcardp rev i o u s l y

n o t ed
. Fi n al l y , AO M eg y es i i n cl u d ed$ 1 9 ,0 0 0 (o f t h e $ 1 9 ,1 0 0 M r. Ko n ku s d o n at ed t o Res to rat i o n Am eri ca i n 2 0 0 9) as a d i s s i p at ed as seto f M r. Ko n kus , reas on i n g th atM r. Ko n ku s was aware o f h i s s ect i o n 6 7 0 0 p en al t y l i ab i l i ti es atth e t i m e o f d o n at i o n . AO M eg y es i ’ s d et erm i n at i o n o f M r. Ko n ku s ’ n etreal izab l e eq u i t y i n as s et s i s s umm ari zed as fo l l o ws :-1 2
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[* 1 2 ] As s et Netreal i zab l e eq u i t y 1 9 74 Ni s s an 2 80 Z $ 1 ,0 3 0 Li fe i n s u ran ce p o l i cy 4 ,5 80 Lo an t o PIC 1 4 6 ,8 8 1 Co n t ri b u t i o n t o Res t o rat i o n Am eri ca 1 9 ,0 0 0 To t al 1 7 1 ,4 9 1 In d et erm in i n g M r. Ko n ku s ’ reas o nab l e co l l ect i o n p o t en t ial AO M eg y es i al s o cal cu l at edM r. Ko n ku s ’ m o n t h l y i n co m e an dex p en ses . Ins o d o i n g , AO M eg y es i accep t edM r. Ko n kus ’ rep o rt edm o n t hl y i nco m e o f $ 1 ,3 7 2 ; fo od , cl o th i n g , an d m i s cel l an eo u s ex p en s es o f $ 5 6 5 ; o u t -o f-p ock eth eal t h care ex p en s es
o f $ 6 0; an dt ax ex p en s es o f $ 1 2 5 . Ho wev er, AO M eg y es i d i dn o taccep t M r. Ko n ku s ’ rep o rt edh ou s in g an du t i l i t ies an dtran s p ort at i on o p erat i n g co s t s , as M r. Ko n ku s h adi nfo rm edAO M eg y es i t h ath e l i v edren tfree i n fo recl o s ed p ro p ert i es an ddro v e PIC’ s co m p an y car. AO M eg y es i ’ s cas e m em o ran du m s t at ed th atM r. Ko n ku s h adfai l ed t o pro v i d e ev i den ce t h ath e i n factp ai dan y u t i l i t y
ex p en s es , n o r h adh e p ro ven th ath e p ai dfo r g as wh en dri v in g PIC’ s co m pan y car. Acco rd in g t o AO M eg y es i ’ s cal cu l at i o n s th i s res u l t edi n m on t h l y d i s po s ab l e i n co m e o f $ 62 2 ; o n the b as i s o f an es t i m at e t hatM r. Ko n ku s co u l dp ay fo r a p eri o do f 1 2 m o n t h s AO M eg y es i d et erm i n edth ath e h adfu tu re i n co m e o f $ 7 ,4 6 6
.-1 3
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[* 1 3 ] AO M eg y es i t h erefo re cal cu l at ed M r. Ko n ku s ’ reas o n ab l e co l l ect i o n p o t en t i al t o b e n o l es s t h an $ 1 7 8 ,9 5 6 (co m p ri si n g $ 1 7 1 ,4 9 1 o f n etequ i ty i n as s et s
an d $ 7 ,4 6 6 i n fu tu re i n co m e). AO M eg y es i co n cl ud edi n th e cas e m em o ran du m t h atM r. Ko n ku s ’ OICDATC s h o u l db e reject ed o n two g ro u n d s . Fi rs t , h e d et erm i n edth ati ts h o u l db e reject edo n p ub l i c p o l i cy

g ro u nd s u n d er IRM p t . 5 .8 .7 .7 .2 (M ay 1 0 , 2 01 1 ) b ecau s e M r. Ko n ku s an dPIC h adfi n an ci al l y b en efi tedfro m fal s el y

ad v i si ng s el l ers th at th ei r co n tri b u t io n s t o PIC were t ax d edu ct i b le. AO M eg y es i b el i ev ed , g iv en th at M r. Ko n ku s ’ o p erat i o n o f a n o t -fo r-p ro fi ten t i t y h ad res u lt edi n s ect i o n 6 7 0 0 p en al ty l iab i li t ies t o t al in g o v er $ 6 m i l l io n , th att o accep th is m uch l o wer o ffer
co u ldi n cen t i v ize s i m i l arl y s itu at edt ax p ay ers t o ab u s e n o t -fo r-p ro fi ten t i t i es , kn o wi n g th atan y

n eg at i v e co n s equ en ces wo u l d b e s l i g h t. Al t ern at i vel y , AO M eg y es i co n cl u dedthatM r. Ko n ku s ’ OIC-DATC s h o u l d b e reject edb ecau s e h i s
reas on ab l e co l lect i o n p o t en t i al was s i g n i fi can t ly h ig h er t h an h is o ffer. V. No t i ce o f Det erm i n at i o n Ap p eal s i s s u eda n o t i ce o f d et erm i n at io n t o M r. Ko n ku s o n Feb ru ary 8 , 2 0 1 3 , d en y i n g h i s OIC-DATC an ds u s t ai n i n g th e p ro po s edco l l ect i on act i o n s . Th e
n o t i ce o f d et erm i n at i on s t at edth at M r. Ko nku s ’ OIC-DATC h adb een reject edo n th e b as i s o f p ubl i c p o l i cy p ro v i s i o n s o f t h e IRM b ecau se accep t an ce o f h i s o ffer-1 4
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[* 1 4 ] wo u l d cau s e p ubl ic react i o n t o b e s o n eg at iv e as t o d i m i n i sh fu tu re v o l u n t ary
co m p l ian ce b y

th e g en eral p ub l i c. Itfu rth er reas o n edth ati f M r. Ko n ku s ’ o ffer were accep t ed , “ [e] v ery o n e wo u l d wei gh co m p l y i ng wi t h fed eral t ax l aws ag ai n s t th e p o ten t i al fo r fi n an ci al g ai n i f t h ere i s l i tt l e o r n o co n seq u en ce t o thei r act i o n s .” Al t ern at i v el y , th e n o t i ce o f d et erm in at i o n s t at edth atM r. Ko n ku s’ o ffer--ei t h er t h e $ 2 ,2 1 5 o ri gi n al am o u n to r h is i n creas ed o ffer o f $ 5 0 ,0 0 0 du ri n g t h e t el ep h o n e
co n feren ce--was reject edb ecau s e i twas d et erm i n edth ath e co u l d p ay a h i g h er
am ou n t . Th e n o t i ce fu rt h er s t at edth at , o n th e b as is o f t h e fi n an ci al i nfo rm at i o n M r. Ko n ku s h adp ro vi ded , i twas d et erm i n ed t hatan accep t ab l e o ffer s h ou l db e “ i n th e ran g e o f $ 1 8 0 , 0 0 0
. 0 0 o r h i g h er” an dth atM r. Ko n ku s h adrefu s edt o co n s i d er
am en d i n g h i s o ffer t o refl ectth atam o u nt . Th e n ot i ce m ad e s p eci fi c referen ce t o M r. Ko n ku s ’ $ 1 4 6 ,8 8 1 o u t s t an d i n g l oan t o PIC an dco n cl u d edth at M r. Ko n ku s

“ h [ad ] no tp ro v i d eds u ffi ci en tfi n an ci al i n fo rm at i o n fo r * * * [PIC] t o es t ab l i s h th at* * * [PIC] d o [es ] n o th av e t h e ab i l i t y t o rep ay th e l o an .” M r. Ko n ku s t i m el y

fi l eda p et i t i o n fo r rev i ew o f t h e d et erm i n at i o n .

OPINION I. St atu t o ry

Fram ewo rkan dth e Es t at e’ s Arg um en t s Sect io n 6 3 2 1 i m

p os es a l i en i n fav or o f t he Un i t edSt at es o n al l p ro pert y an d ri gh t s t o p ro p ert y

o f a t ax p ay er aft er a d em an d fo r t h e t ax es h as b een m ad e an dth e-1 5
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[* 1 5 ] t ax p ay er fai ls t o p ay th os e t ax es . Th e l i en ari s es wh enan as s es s m en ti s
m ad e. See s ec. 6 3 2 2 . Th e Secret ary g en eral l y m us tfi le a n o ti ce o f l i en wi t h cert ai n St at e o r l o cal au th ori ti es wh ere a t ax p ay er’ s p ro p ert y i s s i tu at edfo r t h e l i en t o b e v al i dag ai n s tcert ai n cat eg o ri es o f t hi rdp art i es . Sec. 6 3 2 3 (a), (f); Beh l i n g v . Co m m i s s i o n er, 1 1 8 T.C. 5 7 2 , 5 7 5 (2 0 0 2). Sect i o n 6 3 2 0 p ro vi d es t h atth e Secret ary s h al l fu rn i s h th e t ax pay er wi t h wri t t en n o t i ce o f t he fi l i n g o f an NFTL
an d o f t h e t ax p ay er’ s ri g h tt o a h eari n g wi t h Ap p eal s co n cern i n g th e l i en . Sec. 6 3 2 0 (a)(1 ), (3 ). Sect io n 6 3 3 1 (a) au t h o ri zes th e Secret ary t o l ev y up on p ro pert y an dp ro p ert y ri gh t s o f a p ers o n l iab l e fo r an y t ax (t ax p ay er) i f t h e t ax p ay er fai ls t o p ay th e t ax wi th i n 1 0 d ay s aft er n o t i ce an dd em an dfo r p aym en ti s m ad e. Su ch a l ev y , h o wev er, g en eral l y

req u i res th atth e Secret ary fi rs t n o t i fy

th e t ax pay er i n wri t i n g
o f h i s o r h er ri g h t t o a p rel ev y h eari n g wi t h Ap p eal s o n th e i s s ue o f wh et h er t h e l ev y i s ap p ro p ri at e. Sec. 6 3 3 0(a)(1 ), (b )(1 ). If t h e t ax p ay er t i m el y

req u es t s a h eari n g , an Ap peal s o ffi cer m us tatth e h eari n g v eri fy

th atth e req u irem en t s o f an y ap p li cab l e l aw o r adm i ni s t rat i v e p ro cedure h av e b een m et . Secs . 6 3 2 0 (c), 6 3 3 0 (c)(1 ). In ad d i ti o n , th e t ax pay er
m ay g en eral l y rai s e atthe h eari n g “ an y rel ev an t i s s ue”, i n cl u d i ng ap p ro p ri at e
s p o u sal d efen s es , ch al l en g es t o th e ap p ro p ri at en es s o f t h e co l l ect i on act i o n , an d-1 6
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[* 1 6 ] p o s s i b l e co l l ect i o n al t ern at i ves . Secs . 6 3 2 0 (c), 6 33 0 (c)(2 )(A). Th e t ax p ay er
m ay ch al l en g e t h e ex i s t en ce o r am o u n to f t h e u n d erl y i n g t ax l i ab i l i t y , b u to n l y i f h e d i d no trecei v e a n o t i ce o f d efi ci en cy wi th res p ect t o the l i ab i l i ty o r o t herwi se h av e ano p po rtu ni t y to d i sp u te i t . Secs . 6 3 2 0 (c), 6 3 3 0 (c)(2 )(B). Atth e co n cl u s i o n o f t h e s ect i o n 6 33 0 h eari n g th e Ap p eal s o ffi cer m u s t d et erm i n e wh eth er t o s u s t ai n t h e co l l ect i o n act i o n an d s h al l t ak e i n t o acco u n t : (1 ) t h e v eri fi cat i o n t h atth e req ui rem en t s o f ap p li cab l e l aw an d ad m i n i s trat i v e p ro cedure h av e b een m et , (2 ) t h e rel ev an t i ss ues rai s edb y th e t ax pay er, an d (3 ) wh et h er t h e p ro po s edl ien o r l ev y act i o n ap p ro pri at el y

b al an ces th e n eedfo r effi ci en tco l lect i o n o f t ax es wi t h th e t ax p ay er’ s l eg i t i m at e co n cern th at t h e p ro p os edco l l ect i o n act i o n b e n o m o re i n t ru s i ve t h an n eces s ary . Sec. 6 33 0 (c)(3 ). Sect io n 6 3 3 0 (d )(1 ) g ran t s th i s Co u rtjuri s d ict i o n t o rev i ew an Ap peal s
o ffi cer’ s d et erm i n at i o n i n co nn ect i o n wi th a s ect i o n 6 3 3 0 h eari n g . Wh ere t h e
u n d erl y i n g t ax l iab i l i t y

i s p ro p erl y

ati s s u e, we rev i ew t h e t ax p ay er’ s l i ab i l it y d e
n o v o . See Go za v . Co m

m i s s i o n er, 1 1 4 T.C. 1 7 6, 1 8 1 -1 8 2 (2 0 0 0 ). Th e p art i es ag ree t h atth e u n d erl y i ng t ax l i ab i l i t y i s n o t ati s s u e, an dth e es t at e d o es n o tco n t es t
res p o n d en t’ s reject i o n o f t h e OIC-DATL. Acco rd i n g l y , we rev i ew t h e Ap peal s
o ffi cer’ s reject i o n o f M r. Ko n ku s ’ OIC-DATC an dd et erm i n at io n t o s u s t ai n th e p ro p os edco l l ect i o n act i o ns fo r ab u s e o f d i s cret i on . See Lu n s fo rdv .-1 7
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[* 1 7 ] Co m

m i s si o n er, 1 1 7 T.C. 1 8 3 , 1 8 5 (2 0 01 ); Seg o v . Co m m i s s io n er, 1 1 4 T.C. 6 0 4 , 6 1 0 (2 0 0 0); Go za v . Co m m i s si o ner, 1 1 4 T.C. at 1 8 2 . Th e Ap p eal s o ffi cer ab u ses h i s d i s cret i o n i f h e act s “ arb i t rari l y , cap ri ci ou s ly , o r wi t h ou ts o u n d b as i s i n fact o r l aw.” W o o dral v . Co m m i s s i o n er, 1 1 2 T.C. 1 9 , 2 3 (1 9 9 9). In d eci d i n g th e p ro p ri et y o f an Ap p eal s o ffi cer’ s reject i o n o f an o ffer-i n -co m p ro m i s e we d o n o t
s ub s t i tu t e o u r ju d g m en tfo r t h ato f t h e Ap p eal s o ffi cer, an dwe d o n otd eci d e i n d ep en den t l y

th e am o u n tth atwe b el i ev e wo u l db e an accep t ab le o ffer-i n co m p ro m i s e. See M u rp h y

v . Co m m i s s i o n er, 1 2 5 T.C. 3 0 1 , 3 1 5 (2 0 0 5 ), aff’ d , 4 6 9 F.3 d2 7 (1 s t Ci r. 2 0 0 6 ). Sect io n 7 1 2 2 (a) au t h o ri zes th e Secret ary t o co m p ro m i s e an y ci v i l o r cri m i n al cas e ari s i n g u n d er th e i n t ern al rev en u e l aws ; s ect i on 7 1 2 2(c) au t h o ri zes th e Co m m i s s i o n er t o p res cri b e g u i d el i nes t o d et erm i n e wh en a t ax pay er’ s o ffer-i n co m p ro m i s e s ho u l db e accep t ed . Th e ap p l i cab l e reg u l at i o n s s etfo rt h t hree g ro u nd s fo r co m

p ro m i s i ng a t ax l i ab i l i t y : (1 ) d o ub tas t o l i ab il i t y , (2 ) d o ub tas t o
co l l ect i b i l i t y , an d(3 ) p ro m ot i o n o f effect i v e t ax ad m i n i s t rat io n . Sec. 3 0 1 .7 1 2 2
- 1 (b ), Pro ced . & Ad m in . Reg s . “ Do ub t as t o co l l ect i bi l it y ex is t s i n an y cas e wh ere th e t ax p ay er’ s as s et s an di n co m e are l es s t h an th e fu l l am o u n to f t he l iab i l i t y .” Id
. s ub p ara. (2 ). Ho wev er, t h e d eci s i o n t o accep to r reject an o ffer-i n -co m p ro m i s e i s l eftt o th e Secret ary ’ s d i scret i o n. Id . p ara. (c)(1 ). “ T he d et erm in at io n wh et h er t o-1 8
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[* 1 8 ] accep t o r reject an o ffer t o co m p ro m is e wi l l b e b as edup o n co n s i derat i o n o f al l th e fact s an dci rcu m s tan ces , i n cl u d i n g wh et h er t h e ci rcu m s tan ces o f a p art i cu l ar
cas e warran taccep t an ce o f an am o u n tth atm i g h t n o to th erwi se b e accep t ab l e
u n d er t h e Secret ary ’ s p o l i ci es an dp ro cedu res .” Id
. Th e es t at e co n ten d s th at AO M eg y es i ab u s edh i s d i scret i o n i n reject in g th e OIC-DATC i n t wo m ajo r res p ect s . Fi rs t , th e es t at e arg u es t hatAO M eg y es i
m i s ap p li edthe IRM s t an d ard s fo r d en y i ng M r. Ko n ku s ’ o ffer o n p ub l i c p o l i cy g ro u nd s . Seco n d , th e es t at e al leg es thatAO M eg y es i fai l edt o p ro p erl y cal cu l at e M r. Ko n ku s ’ reas o nab l e co l l ect i o n p o t en t ial i n reject i n g th e o ffer. 6 Ho w ev er, b ecau s e we fi n dth atAO M eg y es i p ro p erl y cal cu l at edM r. Ko n ku s ’ reas o n ab l e
co l l ect i o n p o t en t i al an dap p ro p ri at el y s u s t ai n edth e reject i o n o f h i s OIC-DATC o n th atg ro u n d , we n eedn o t ad dres s th e fi rs targ u m en t .

6 Th e es t at e al s o co n t en d s , fo r t h e fi rs t t im e o n b ri ef, t h atAO M eg y es i was n o tan im p art i al o ffi cer as req u i redb y s ec. 6 3 3 0 (b )(3 ) b ecau se h e en g ag edi n p ro h ib i t edex p art e co m

m u n i cat i o n s . Th e es tat e o ffers n o s p eci fi cs reg ard i n g th i s al l eg at i o n n o r an y

ev i d en ce t o s up p o rti t . As th e reco rd i s cl o s ed , res p on d en t wo u l db e p reju d i ced i f we co ns i d eredth i s i s s u e, as h e wo u l db e d ep ri v edo f an y o p p o rtu ni t y

t o p ro ffer ev id en ce t o reb u tth e al l eg at i o n . W e co n cl ud e t h atth e es t at e’ s cl ai m is u n t i m el y an d d ecl i n e t o co n s i d er i t .-1 9
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[* 1 9 ] II. Wh et h er AO M eg y es i Ab u sedHi s Di s cret io n i n Cal cu lat i ng M r.

Ko n ku s ’ Reas o n ab l e Co l l ect i o n Po t en ti al Gen eral ly , u n d er t h e IRS’ ad m i n is t rat i v e g u i d an ce an o ffer t o co m p ro m i s e b as edo n d oub tas t o co l l ect i b i l i t y wi l l b e accep t ab l e o n l y

i f t h e o ffer ex ceed s th e t ax p ay er’ s reas o n ab l e co l l ect i o n p o t en t i al (i .e., th atam o un t , l es s t h an th e fu l l l i ab i l i ty , th at t h e IRS co u ld co l l ectthro u g h m ean s s u ch as ad m i n i s trat i v e an d ju d i ci al co l l ect i o n rem ed i es ). Rev . Pro c. 2 00 3 -7 1 , s ec. 4 .0 2 (2 ), 2 00 3 -2 C.B. 5 1 7 , 5 1 7 . A t ax p ay er’ s reas o n ab l e co l l ect i o n p o t en ti al i s d et erm i n ed , i n p art , u s i n g p ub l i s h edg u i d el i n es fo r cert ai n n at i o n al an dl o cal al l o wan ces fo r b as i c l iv i n g
ex p en s es an d es sen ti al l y

treat i n g i n co m e an das s et s i n ex ces s o f t h o s e n eed edfo r b as i c l iv i n g ex p en s es as av ai lab l e t o s at is fy Fed eral t ax l iab i l i t ies . See Lem an n v . Co m m i s s i o n er, T.C. M em o . 2 0 0 6 -3 7
. 7 Th e IRM p ro v i d es p ro cedu res fo r an al y zi n g a t ax pay er’ s fi n an ci al co n d i t i o n t o d et erm i n e reas on ab l e co l l ect i o n p o t en t i al . See IRM p t . 5 .8
. 5 .1 (Sep t . 2 3 , 2 0 0 8 ). A t ax pay er’ s reas o nab l e co l l ect i o n p o t en t i al i s cal cu lat edb y d et erm in i ng , th en

7 In cert ai n cas es the Secret ary wi l l accep tan o ffer o f l es s t h an th e reas on ab l e co l lect i o n p o t en t i al up o n a s h o wi n g b y th e t ax p ay er o f s p eci al ci rcu m s t an ces . See s ec. 3 0 1
. 7 1 2 2 -1 (c)(3 ), Pro ced . & Ad m i n. Reg s .; Rev . Pro c. 2 0 0 3 -7 1 , s ec. 4 .0 2 (2 ), 2 00 3 -2 C.B. 5 1 7 , 5 1 7
. Ho wev er, t h e es t at e h as n ei th er i d en t i fi edn o r arg u edth atan y sp eci al ci rcu m s t an ces ex is twh i ch wo ul d co m p el th e Secret ary t o accep tan o ffer o f l es s th an M r. Ko n ku s ’ reas on ab l e co l l ect i o n p o t en t i al
.-2 0
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[* 2 0 ] ad di n g t o g et h er: (1 ) t h e t ax p ay er’ s “ n etreal i zab l e eq u i t y ”, i .e., th e qu i ck
s al e v al u e o f t h e t ax pay er’ s as s et s l es s am o u n t s o wedt o s ecu re l i en h o ld ers wi t h p ri o ri ty o v er Fed eral t ax l i en s , an d(2 ) h i s “ fu ture i n co m e”, i .e., th e am o u n t
co l l ect i b l e fro m t h e t ax p ay er’ s ex p ect edfu tu re g ro ss i n co m e aft er al l o wi n g fo r
n eces s ary l i v i n g ex p en s es . See IRM p t . 5 .8 .5 .4 .1 (Oct . 2 2, 2 0 1 0 ); i d . p t . 5 .8 .5 .1 8 ;
s ee al so J o hn s o n v . Co m

m i s s i o n er, 1 36 T.C. 4 7 5 , 4 8 5 (2 0 1 1 ), aff’ d , 5 0 2 F. Ap p ’ x 1 (D.C. Ci r. 2 0 1 3 ); Lem an n v . Co m m i s si o n er, T.C. M em o . 2 0 0 6-3 7
. Wh en an Ap p eal s o ffi cer h as fo l l o w edth e IRS’ g u i d el in es t o as cert ai n a t ax pay er’ s
reas on ab l e co l lect i o n p o t en t i al an dreject edth e t ax p ay er’ s p ro po s edco l l ect i o n al t ern at i v e o n th atb as i s , we h av e fo u n d n o ab u s e o f d i scret i o n . See M u rp h y v . Co m m i s s i o n er, 1 2 5 T.C. at3 2 1; Lem an n v . Co m m is s i o n er, T.C. M em o . 2 0 0 6 -3 7
. Th e es t at e ch i efl y co n ten d s thatAO M eg y es i d idn o t cal cu lat e M r. Ko n ku s ’
reas on ab l e co l lect i o n p o t en t i al as req u i redb y th e IRS’ g u i d el i n es b uti n s t eadu s ed
an u n s ub s t an t i at edes t im at e, ci t i n g th e s t at em en t i n t h e n o t i ce o f d et erm i n at i o n th at M r. Ko n ku s co u l dp ay

an am ou n t“ i n th e ran g e o f $ 1 8 0,0 0 0 .0 0 o r h i g h er”. Th e
es t at e al t ern at i vel y co n t en d s t h atAO M eg y es i i m p ro p erl y cal cu lat edM r. Ko n ku s ’
reas on ab l e co l lect i o n p o t en t i al . Ho wev er, i ti s cl ear fro m th e cas e m em o ran du m th atAO M eg y es i co n s id eredthe fi n an ci al i n fo rm at i o n M r. Ko n ku s s ub m i t t edfo r-2 1
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[* 2 1 ] h i m s el f an dPIC an dfo l l o wedth e IRS’ p ub l i s h edg u i del i n es t o as cert ai n M r. Ko n ku s’ reas o n ab l e co l lect i o n p o t en t ial
. AO M eg y es i cal cu lat edth e n etreal i zab le eq ui t y i n M r. Ko n ku s’ car b y accep t i n g i t s fai r m ark etv al u e as M r. Ko n ku s rep o rt edi t o n th e Fo rm 4 3 3 -A, $ 5 ,6 0 0 , redu ci ng i t t o a qu i ck s al e v al u e o f $ 4 ,4 8 0 an dfu rt h er red u ci n g i t b y $ 3 ,4 5 0 . See IRM p t . 5 .8 .5 .4
. 1
. 8 AO M eg y es i cal cu l at edth e n etreal i zab l e equ i t y i n M r. Ko n ku s ’ l i fe i n s u ran ce p o l i cy b y accep t i n g i t s v al u e as M r. Ko nku s rep o rt edi to n Fo rm 4 3 3 -A, $ 7 ,3 5 3 , an ds ub t ract in g th e p ol i cy ’ s o u t st an d i n g l o an b al an ce, $ 2 ,7 7 4 . See IRM p t . 5 .8 .5 .8 (Oct . 2 2 , 2 01 0 ). AO M eg y es i al s o i n cl u d ed $ 1 9 ,0 0 0 th atM r. Ko n ku s d o nat edt o Am eri can Res to rat i o n du ri ng 2 0 0 9 as a d i s s i pat edas s et , reas o n i ng th atatth att i m e M r. Ko n ku s was aware o f h i s l arg e
s ect i on 6 7 0 0 p en al t y

l i ab i l i ti es . See i d . p t . 5 .8 .5 .1 6 (al l o w i n g t h e v al u e o f d i s s i pat edas s et s , i n cl u d i n g g i ft s , t o b e i n cl u d edi n th e cal cu l at i o n o f reas o n ab l e
co l l ect i o n p o t en t i al ). AO M eg y es i d et erm i n edth atth e “ t h ri fts t o re v al u e” o f t h e

8 IRM p t . 5 .8
. 5 .1 2 (Sep t . 3 0 , 2 0 1 3) al lo ws fo r t he ex cl u s i on o f $ 3 ,4 5 0 fro m th e qu icks al e v al u e o f v eh icl es o wn edb y a t ax pay er an d u s ed fo r wo rk , th e p ro duct i o n o f i n co m e, o r th e wel fare o f t h e t ax p ay er’ s fam i l y . Ho wev er, t h i s p ro v is i o n o f t h e IRM was ad d edaft er AO M eg y es i h ad i s s ued t h e n o t i ce o f d et erm i n at i o n . W e t h erefo re t reat th i s redu ct i o n i n t h e n etreal i zab l e equ i t y o f M r. Ko n ku s ’ p ers o nal v eh i cl e as a co n ces s i o n b y res po n d en t. W e n o t e t h at M r. Ko n ku s ’ reas o nab l e co l l ect i o n p o t en t ial ex ceed s h i s o ffer d es p i t e t h i s co n ces si o n .-2 2
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[* 2 2 ] i t em s as l i s t edo n M r. Ko n ku s ’ 2 0 09 retu rn al read y refl ect ed t he i tem s ’ qu i cks al e v al u e. Fi n al l y , AO M eg y es i i n cl u d edth e $ 1 4 6 , 8 8 1 l o an th atM r. Ko nku s h adm ad e t o PIC as a co l l ect i b l e as s eti n cal cu l at in g h i s n etreal i zab l e equ i t y . See i d
. p t . 5 .8
. 5.1 3 (n ot es recei v ab le are co n s i d eredas s et s an ds h o u l db e v al u edi n p artb y wh ati s co l lect i b l e fro m

th e b o rro w er). Th e es t at e arg u es th atth i s am o u n ts h o u l d
n o th av e b een i ncl u d edas a co l l ect i b l e as s etb ecau s e M r. Ko n ku s t es ti fi ed attri al th atth e am o u n tati s su e was p ro v i d ed t o PIC as a cap i t al co nt ri bu t i o n an d n o ta l o an . Ho wev er, an Ap p eal s o ffi cer i s req u i redt o co n s i d er o n l y th e i n fo rm at i o n p res en t edb y

th e t ax p ay er du ri n g a s ect i o n 6 3 30 h eari n g , an di n rev i ewi n g t h e Ap p eal s o ffi cer’ s d et erm i n at i o n we are l ik ewi s e l i m i tedt o rev i ewi n g t h e i n fo rm at i o n p res en t ed
. See Ch an d l er v . Co m m i s s i o n er, T.C. M em o . 2 0 0 4 -7
. Th ere i s n o ev i d en ce i n th e ad m i n i s t rat i v e reco rdt o s u g ges tth atM r. Ko n ku s
co n ten d ed du ri n g t h e s ect i o n 6 3 3 0 h eari n g th atth e am o u n t ch aract eri zed as a l o an
o n PIC’ s b al an ce s h eetactu al l y co n s t i tut eda cap i t al co n t ri b u t i on . To th e co n t rary , AO M eg y es i ’ s n o t es o f t h e t el ep h o n e co n feren ce reco rdth at M r. Ko n ku s
s p eci fi cal l y

referred t o th e $ 1 4 6 ,8 8 1 as a l o an an darg u edth atth i s am o un t was n o t
a co l l ect ib l e as s etb ecau se PIC co u l dn o t rep ay i t . No t i n g th atPIC’ s b al an ce
s h eet s d em o n s t rat edth ati th ads u ffi ci en tas s et s an dcas h t o p ay th e o u ts tan d i n g-2 3
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[* 2 3 ] b al an ce i n fu l l , AO M eg y es i d et erm i n edth atthe $ 1 4 6 ,8 81 s h ou l d b e i n cl u d edas a co l l ect ib l e as s et . Gi v enAO M eg y es i ’ s o t h er fi n d i ng s co ncern i n g PIC’ s p aym en to f M r. Ko nku s ’ p ers o n al ex p en s es du ri n g 2 0 1 2 , we d o n o tb el i ev e i t w as an ab u s e o f d i s cret io n fo r h i m t o co n cl ud e t h atM r. Ko n ku s co u l dcau s e PIC t o rep ay th e l oan . AO M eg y es i ’ s i ncl u s io n o f th e $ 14 6 ,8 8 1 as an as s eto f M r. Ko n ku s was reas o n ab l e. AO M eg y es i l i k ewi s e fo l l o wed t he IRS’ p ub l is h ed g u i d el in es i n co m p u t i n g M r. Ko n ku s ’ fu tu re i n co m e. AO M eg y es i accep t edthe am o u n t o f m on t h l y i n co m e M r. Ko n ku s rep ort edo n h i s Fo rm 4 3 3-A, $ 1 , 3 7 2 , an d redu cedi tb y th e n at i o n al
s t an d ard s fo r fo o d , cl o th i n g , an dm i s cel lan eo u s an dth o s e fo r o ut -o f-p o ck et h eal thcare co s ts M r. Ko nku s cl ai m edo n Fo rm 4 3 3 -A, as wel l as th e ex p en s e fo r t ax es h e cl ai m ed . See IRM p t . 5 .1 5 .1 .8 (1 ), (5 ) (Oct . 2 , 2 0 1 2 ). Ho wev er, g i v en th atM r. Ko n ku s h adad v i s edAO M eg y es i th ath e l i v edi n fo recl o s ed p ro p ert i es
an d th us h adn o ren tex p en ses an ddro ve a co m pan y car, AO M eg y es i d i dn o t al l o w M r. Ko n ku s ’ cl ai m edh o u s i n g an du t il i ti es an dtran s p o rt at i o n ex p en s es , rel y i n g o n IRM g u i d el in es th atal l o wth e l es s er o f t h e l o cal s tan d ardo r t h e am o u n t actu al l y p ai d fo r s u ch ex p en s es , s ee i d . p t. 5
. 1 5 .1 .7 (4 ). AO M eg y es i fu rt h er
co n cl u d ed i n th e cas e m em o ran du m th atM r. Ko n ku s h adp ro v id edn o ev i d en ce-2 4
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[* 2 4 ] th ath e p ers on al l y p ai d ei t h er u t i li t y o r g as ex p en s es , an do u r rev i ew o f t h e ad m i n is trat i v e reco rdd i s cl o s es n o n e. AO M eg y es i ’ s d et erm i n at i o n t o rejectM r. Ko n kus ’ OIC-DATC o n t h e g ro u nd s th ath i s o ffer fel l b el o wh i s reas o nab l e co l l ect i o n p o ten t ial was n o t arb i trary , cap ri ci o us , o r wi t h ou ta s o u n db as is i n facto r l aw; i t was b as edo n a
reas on ab l e ap p l i cat i o n o f t h e IRS’ p ub l i sh edg ui d el i n es , wh i ch we d ecl i n e t o
s eco n d -g u es s . See Sp el t z v . Co m m i s s io n er, 1 2 4 T.C. 1 6 5 (2 0 0 5 ), aff’ d , 4 5 4 F.3 d 7 8 2 (8 th Ci r. 2 0 06 ). Fi n d i n g n o ab u s e o f d i scret i o n, we wi ll s u s t ai n th e p ro p o s ed
co l l ect i o n act i on s . To refl ectthe fo reg o i n g , Deci s i o n wi ll b e en t eredfo r
res p o nd en t .